RE/MAX HOLDINGS, INC., 10-K filed on 3/15/2018
Annual Report
v3.8.0.1
Document and Entity Information - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2017
Feb. 28, 2018
Jun. 30, 2017
Entity Registrant Name RE/MAX Holdings, Inc.    
Entity Central Index Key 0001581091    
Document Period End Date Dec. 31, 2017    
Current Fiscal Year End Date --12-31    
Document Type 10-K    
Document Fiscal Year Focus 2017    
Document Fiscal Period Focus FY    
Amendment Flag false    
Entity Current Reporting Status No    
Entity Voluntary Filers No    
Entity Well-known Seasoned Issuer No    
Entity Filer Category Large Accelerated Filer    
Entity Public Float     $ 988.5
Common Class A      
Entity Common Stock, Shares Outstanding   17,696,991  
Common Class B      
Entity Common Stock, Shares Outstanding   1  
v3.8.0.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2017
Dec. 31, 2016
Current assets:    
Cash and cash equivalents $ 50,807 $ 57,609
Accounts and notes receivable, current portion, net 21,304 19,419
Income taxes receivable 870  
Other current assets 6,924 4,186
Total current assets 79,905 81,214
Property and equipment, net 2,905 2,691
Franchise agreements, net 119,349 109,140
Other intangible assets, net 8,476 9,811
Goodwill 135,213 126,633
Deferred tax assets, net 59,151 105,770
Other assets, net of current portion 1,563 1,894
Total assets 406,562 437,153
Current liabilities:    
Accounts payable 517 1,000
Accrued liabilities 15,390 13,268
Income taxes payable 133 379
Deferred revenue and deposits 18,918 16,306
Current portion of debt 2,350 2,350
Current portion of payable pursuant to tax receivable agreements 6,252 13,235
Total current liabilities 43,560 46,538
Debt, net of current portion 226,636 228,470
Payable pursuant to tax receivable agreements, net of current portion 46,923 85,574
Deferred tax liabilities, net 151 133
Other liabilities, net of current portion 19,897 15,729
Total liabilities 337,167 376,444
Commitments and contingencies (Note 14)
Stockholders' equity:    
Additional paid-in capital 451,199 448,713
Retained earnings 16,027 16,005
Accumulated other comprehensive income (loss), net of tax 515 (28)
Total stockholders' equity attributable to RE/MAX Holdings, Inc. 467,743 464,692
Non-controlling interest (398,348) (403,983)
Total stockholders' equity 69,395 60,709
Total liabilities and stockholders' equity 406,562 437,153
Common Class A    
Stockholders' equity:    
Common stock 2 2
Common Class B    
Stockholders' equity:    
Common stock
v3.8.0.1
Consolidated Balance Sheets (Parenthetical) - $ / shares
Dec. 31, 2017
Dec. 31, 2016
Common Class A | Common Stock    
Common stock, par value $ 0.0001 $ 0.0001
Common stock, shares authorized 180,000,000 180,000,000
Common stock, shares issued 17,696,991 17,652,548
Common stock, shares outstanding 17,696,991 17,652,548
Common Class B    
Common stock, shares outstanding 1  
Common Class B | Common Stock    
Common stock, par value $ 0.0001 $ 0.0001
Common stock, shares authorized 1,000 1,000
Common stock, shares issued 1 1
Common stock, shares outstanding 1 1
v3.8.0.1
Consolidated Statements of Income - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Revenue:      
Continuing franchise fees $ 93,694 $ 81,197 $ 73,750
Annual dues 33,767 32,653 31,758
Broker fees 43,801 37,209 32,334
Franchise sales and other franchise revenue 24,667 25,131 25,468
Brokerage revenue   112 13,558
Total revenue 195,929 176,302 176,868
Operating expenses:      
Selling, operating and administrative expenses 107,268 88,213 91,561
Depreciation and amortization 20,512 16,094 15,124
Loss (gain) on sale or disposition of assets, net 660 178 (3,397)
Gain on reduction in tax receivable agreement liability (note 11) (32,736)    
Total operating expenses 95,704 104,485 103,288
Operating income 100,225 71,817 73,580
Other expenses, net:      
Interest expense (9,996) (8,596) (10,413)
Interest income 352 160 178
Foreign currency transaction gains (losses) 174 (86) (1,661)
Loss on early extinguishment of debt   (796) (94)
Equity in earnings of investees     1,215
Total other expenses, net (9,470) (9,318) (10,775)
Income before provision for income taxes 90,755 62,499 62,805
Provision for income taxes (55,576) (15,273) (12,030)
Net income 35,179 47,226 50,775
Less: net income attributable to non-controlling interest (note 3) 22,364 24,830 34,363
Net income attributable to RE/MAX Holdings, Inc. $ 12,815 $ 22,396 $ 16,412
Net income attributable to RE/MAX Holdings, Inc. per share of Class A common stock      
Basic $ 0.72 $ 1.27 $ 1.30
Diluted $ 0.72 $ 1.27 $ 1.28
Weighted average shares of Class A common stock outstanding      
Basic 17,688,533 17,628,741 12,671,051
Diluted 17,731,800 17,677,768 12,829,214
Cash dividends declared per share of Class A common stock $ 0.72 $ 0.60 $ 2.00
Common Class A      
Net income attributable to RE/MAX Holdings, Inc. per share of Class A common stock      
Basic 0.72 1.27 1.30
Diluted $ 0.72 $ 1.27 $ 1.28
Weighted average shares of Class A common stock outstanding      
Basic 17,688,533 17,628,741 12,671,051
Diluted 17,731,800 17,677,768 12,829,214
Cash dividends declared per share of Class A common stock $ 0.72 $ 0.60 $ 2.00
v3.8.0.1
Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Statement Of Income And Comprehensive Income [Abstract]      
Net income $ 35,179 $ 47,226 $ 50,775
Change in cumulative translation adjustment 1,074 165 (1,289)
Other comprehensive income (loss), net of tax 1,074 165 (1,289)
Comprehensive income 36,253 47,391 49,486
Less: comprehensive income attributable to non-controlling interest 22,895 24,918 34,065
Comprehensive income attributable to RE/MAX Holdings, Inc., net of tax $ 13,358 $ 22,473 $ 15,421
v3.8.0.1
Consolidated Statements of Stockholders' Equity - USD ($)
$ in Thousands
Common Stock
Common Class A
Common Stock
Common Class B
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Non-controlling interest
Common Class A
Common Class B
Total
Beginning balance, Value at Dec. 31, 2014 $ 1   $ 242,435 $ 11,822 $ 886 $ (215,861)     $ 39,283
Beginning balance, Shares at Dec. 31, 2014 11,768,041 1              
Net income       16,412   34,363     50,775
Distributions to non-controlling unitholders           (42,827)     (42,827)
Equity-based compensation expense and related dividend equivalents, value     1,453           1,453
Dividends to Class A common stockholders       (24,003)     $ (24,000)   (24,003)
Change in accumulated other comprehensive (loss) income         (991) (298)     (1,289)
Excess tax benefit realized on exercise of stock options and delivery of vested restricted stock units     2,770           2,770
Payroll taxes related to net settled restricted stock units     (327)           (327)
Payroll taxes related to net settled restricted stock units (in shares) (8,873)                
Issuance of Class A common stock, equity-based compensation plans, value     2,248           $ 2,248
Issuance of Class A common stock, equity-based compensation plans, shares 650,183                
Issuance of Class A common stock, net of underwriters discount and expenses, value $ 1   186,299     (186,300)      
Issuance of Class A common stock, net of underwriters discount and expenses, shares 5,175,000               5,200,000
Equity effect of establishment of payable pursuant to tax receivable agreements     (33,018)           $ (33,018)
Equity effect of step-up in tax basis and share of RE/MAX Holdings' inside tax basis     43,774           43,774
Other     575           575
Ending balance, Value at Dec. 31, 2015 $ 2   446,209 4,231 (105) (410,923)     39,414
Ending balance, Shares at Dec. 31, 2015 17,584,351 1              
Net income       22,396   24,830     47,226
Distributions to non-controlling unitholders           (17,927)     (17,927)
Equity-based compensation expense and related dividend equivalents, value     2,330           2,330
Dividends to Class A common stockholders       (10,578)     (10,600)   (10,578)
Change in accumulated other comprehensive (loss) income         77 88     165
Payroll taxes related to net settled restricted stock units     (516)           (516)
Payroll taxes related to net settled restricted stock units (in shares) (13,639)                
Issuance of Class A common stock, equity-based compensation plans, value     101           101
Issuance of Class A common stock, equity-based compensation plans, shares 81,836                
Other     466           466
Ending balance, Value at Dec. 31, 2016 $ 2   448,713 16,005 (28) (403,983)     60,709
Ending balance, Shares at Dec. 31, 2016 17,652,548 1              
Cumulative effect adjustment from change in accounting principle     123 (44)   (51)     28
Net income       12,815   22,364     35,179
Distributions to non-controlling unitholders           (17,260)     (17,260)
Equity-based compensation expense and related dividend equivalents, value     2,900 (53)         2,847
Equity-based compensation expense and related dividend equivalents, shares 58,426                
Dividends to Class A common stockholders       (12,740)     $ (12,700)   (12,740)
Change in accumulated other comprehensive (loss) income         543 531     1,074
Payroll taxes related to net settled restricted stock units     (816)           (816)
Payroll taxes related to net settled restricted stock units (in shares) (13,983)                
Other     402           402
Ending balance, Value at Dec. 31, 2017 $ 2   $ 451,199 $ 16,027 $ 515 $ (398,348)     $ 69,395
Ending balance, Shares at Dec. 31, 2017 17,696,991 1           1  
v3.8.0.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Cash flows from operating activities:      
Net income $ 35,179 $ 47,226 $ 50,775
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 20,512 16,094 15,124
Bad debt expense 1,109 1,195 433
Loss (gain) on sale or disposition of assets and sublease, net 4,260 (171) (3,650)
Loss on early extinguishment of debt   796 94
Equity in earnings of investees     (1,215)
Distributions received from equity investees     1,178
Equity-based compensation expense 2,900 2,330 1,453
Deferred income tax expense 46,494 3,473 2,531
Fair value adjustments to contingent consideration 180 100  
Payments pursuant to tax receivable agreements (13,371) (1,344)  
Non-cash change in tax receivable agreement liability (32,736)    
Other 1,145 1,029 1,014
Changes in operating assets and liabilities:      
Accounts and notes receivable, current portion (2,924) (3,841) (999)
Advances from/to affiliates (106) 71 (771)
Other current and noncurrent assets (2,414) 362 502
Other current and noncurrent liabilities 1,583 (2,616) 7,253
Income taxes receivable/payable (1,133) (71) 2,770
Deferred revenue and deposits, current portion 2,610 (254) 866
Net cash provided by operating activities 63,288 64,379 77,358
Cash flows from investing activities:      
Purchases of property, equipment and software and capitalization of trademark costs (2,198) (4,502) (3,628)
Acquisitions, net of cash acquired of $0, $131 and $0, respectively (35,720) (112,934)  
Dispositions   200 5,650
Other investing activity, net   (96) (358)
Net cash (used in) provided by investing activities (37,918) (117,332) 1,664
Cash flows from financing activities:      
Proceeds from issuance of debt, net   233,825  
Payments on debt (2,366) (203,298) (9,722)
Capitalized debt amendment costs   (1,379) (555)
Distributions paid to non-controlling unitholders (17,260) (17,927) (42,827)
Dividends and dividend equivalents paid to Class A common stockholders (12,793) (10,578) (24,003)
Proceeds from exercise of stock options   101 2,248
Payment of payroll taxes related to net settled restricted stock units (816) (516) (327)
Net cash (used in) provided by financing activities (33,235) 228 (75,186)
Effect of exchange rate changes on cash 1,063 122 (823)
Net (decrease) increase in cash and cash equivalents (6,802) (52,603) 3,013
Cash and cash equivalents, beginning of year 57,609 110,212 107,199
Cash and cash equivalents, end of period 50,807 57,609 110,212
Supplemental disclosures of cash flow information:      
Cash paid for interest 9,972 7,797 9,319
Net cash paid for income taxes 10,078 11,912 5,841
Schedule of non-cash investing and financing activities:      
Establishment of amounts payable under tax receivable agreements     33,018
Establishment of deferred tax assets     43,774
Note receivable received as consideration for sale of brokerage operations assets   150 851
Increase in accounts payable for capitalization of trademark costs and purchases of property, equipment and software $ 295 150 $ 667
Contingent consideration issued in a business acquisition   $ 6,300  
v3.8.0.1
Consolidated Statements of Cash Flows (Parenthetical) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Consolidated Statements of Cash Flows      
Cash acquired $ 0 $ 131 $ 0
v3.8.0.1
Business and Organization
12 Months Ended
Dec. 31, 2017
Business and Organization  
Business and Organization

1. Business and Organization

RE/MAX Holdings, Inc. (“RE/MAX Holdings”) was formed as a Delaware corporation on June 25, 2013. On October 7, 2013, RE/MAX Holdings completed an initial public offering (the “IPO”) of its shares of Class A common stock. RE/MAX Holdings’ only business is to act as the sole manager of RMCO, LLC (“RMCO”). As of December 31, 2017, RE/MAX Holdings owns 58.49% of the common membership units in RMCO, while RIHI, Inc. (“RIHI”) owns the remaining 41.51% of common membership units in RMCO. RE/MAX Holdings and its consolidated subsidiaries, including RMCO, are referred to hereinafter as the “Company.”

The Company is a franchisor in the real estate industry, franchising real estate brokerages globally under the RE/MAX brand (“RE/MAX”) and mortgage brokerages within the United States (“U.S.”) under the Motto Mortgage brand (“Motto”). RE/MAX, founded in 1973, has over 115,000 agents operating in over 7,000 offices located in more than 100 countries and territories. Motto, founded in 2016, is the first nationally franchised mortgage brokerage in the U.S. The Company sold certain operating assets and liabilities of its owned brokerage offices during 2015 and the first quarter of 2016 to existing RE/MAX franchisees. (See Note 5, Acquisitions and Dispositions). Since then, the Company is 100% franchised, no longer operates any real estate brokerage offices and no longer recognizes brokerage revenue (which consisted of fees assessed by the Company’s owned brokerages for services provided to their affiliated real estate agents).

The Company’s revenue is derived as follows:

·

Continuing franchise fees which consist of fixed contractual fees paid monthly by regional franchise owners and franchisees based on the number of RE/MAX agents in the respective franchised region or office and the number of Motto offices (no significant continuing franchise fees were generated by Motto during the periods presented);

·

Annual dues from RE/MAX agents;

·

Broker fees, which consist of fees paid on real estate commissions when an agent sells a home;

·

Franchise sales and other franchise revenue which consist of fees from initial sales of RE/MAX and Motto franchises, renewals of RE/MAX franchises, master franchise fees, preferred marketing arrangements, approved supplier programs and event-based revenue from training and other programs; and

·

Brokerage revenue prior to the sale of the Company’s brokerage offices in January 2016.

RE/MAX Holdings Capital Structure

RE/MAX Holdings has two classes of common stock, Class A common stock and Class B common stock, which are described as follows:

Class A common stock

Holders of shares of Class A common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Additionally, holders of shares of Class A common stock are entitled to receive dividends when and if declared by the Company’s Board of Directors, subject to any statutory or contractual restrictions on the payment of dividends.

Holders of shares of Class A common stock do not have preemptive, subscription, redemption or conversion rights.

Class B common stock

RIHI is the sole holder of Class B common stock and is controlled by David Liniger, the Company’s Chairman and Co-Founder, and Gail Liniger, the Company’s Vice Chair and Co-Founder. The holder of Class B common stock is entitled to two votes for each Common Unit in RMCO held by the holder, without regard to the number of shares of Class B common stock held. Accordingly, Common Unitholders of RMCO collectively have a number of votes in RE/MAX Holdings that is equal to two times the aggregate number of Common Units that they hold.

The voting rights of the Class B common stock will be reduced to one times the aggregate number of RMCO Common Units held after any of the following events: (i) October 7, 2018; (ii) the death of David Liniger, the Company’s Chairman and Co-Founder; or (iii) at such time as RIHI’s ownership of RMCO Common Units falls below 30% of the number of RMCO common units held by RIHI immediately after the IPO. Additionally, if any Common Units of RMCO are validly transferred in accordance with the terms of the New RMCO, LLC Agreement, the voting rights of the corresponding shares of Class B common stock transferred will also be reduced to one times the aggregate number of RMCO Common Units held by such transferee, unless the transferee is David Liniger.

Holders of shares of Class A common stock and Class B common stock vote together as a single class on all matters presented to the Company’s stockholders for their vote or approval, except as otherwise required by applicable law.

Holders of Class B common stock do not have any right to receive dividends or to receive a distribution upon a dissolution or liquidation or the sale of all or substantially all of the Company’s assets. Additionally, holders of shares of Class B common stock do not have preemptive, subscription, redemption or conversion rights.

v3.8.0.1
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2017
Summary of Significant Accounting Policies  
Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements and notes thereto included in this Annual Report on Form 10-K have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The accompanying consolidated financial statements are presented on a consolidated basis and include the accounts of RE/MAX Holdings and its consolidated subsidiaries. All significant intercompany accounts and transactions have been eliminated. In the opinion of management, the accompanying consolidated financial statements reflect all normal and recurring adjustments necessary to present fairly the Company’s financial position as of December 31, 2017 and 2016, the results of its operations and comprehensive income, changes in its stockholders’ equity and its cash flows for the years ended December 31, 2017, 2016 and 2015.

During 2017 and 2016, the Company completed the acquisitions of various independent regions. Their results of operations, cash flows and financial positions are included in the consolidated financial statements from their respective dates of acquisition. See Note 5, Acquisitions and Dispositions for additional information.

Reclassifications

Certain items in the accompanying consolidated financial statements as of and for the years ended December 31, 2016 and 2015 have been reclassified to conform to the current year’s presentation. These reclassifications did not affect the Company’s consolidated results of operations.  

Use of Estimates

The preparation of the accompanying consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Significant areas in which management uses assumptions include, among other things, the allowance for doubtful accounts, the estimated lives of intangible assets, amounts accrued for litigation matters, the fair value of assets acquired and liabilities assumed in business combinations, the accounting for income taxes, the fair value of reporting units used in the annual assessment of goodwill, the fair value of the contingent consideration and the amounts due to RIHI and Oberndorf Investments LLC (“Oberndorf”) pursuant to the terms of the tax receivable agreements (the “TRAs”) discussed in more detail in Note 3, Non-controlling Interest. Actual results could differ from those estimates.

Principles of Consolidation

As of December 31, 2017, RE/MAX Holdings owns 58.49% of the common membership units in RMCO, and, as its managing member, RE/MAX Holdings controls RMCO’s operations, management and activities. As a result, RE/MAX Holdings consolidates RMCO and records a non-controlling interest in the accompanying Consolidated Balance Sheets and records net income attributable to the non-controlling interest and comprehensive income attributable to the non-controlling interest in the accompanying Consolidated Statements of Income and Consolidated Statements of Comprehensive Income, respectively.

Segment Reporting

Since the first quarter of 2016, the Company has operated in one reportable segment, Real Estate Franchise Services. The Company launched Motto in October 2016, and, while we operate through both RE/MAX and Motto as of December 31, 2017, due to the immateriality of revenue earned by Motto, we disclose only one reportable segment. 

Revenue Recognition

The Company generates revenue from continuing franchise fees, annual dues, broker fees, franchise sales and other franchise revenue and, through January 2016, brokerage revenue. Revenue is recognized when there is persuasive evidence of an arrangement, the service has been rendered, the price is fixed or determinable and collection of the fees is reasonably assured.

Continuing Franchise Fees

The Company provides an ongoing trademark license, operational, training and administrative services and systems to franchisees, which include technology and tools designed to help the Company’s franchisees attract new or retain existing agents.  In addition, training, technology and other tools are provided to the agents within the network to enable them to enhance the service provided to home buyers and sellers.  RE/MAX continuing franchise fees principally consists of fixed fees earned monthly from franchisees on a per agent basis.  Motto continuing franchise fees are fixed contractual fees paid monthly by Motto franchisees.  Revenue from continuing franchise fees is recognized in income when it is earned and becomes due and payable, as stipulated in the related franchise agreements.

Annual Dues

Annual dues revenue represents amounts assessed to agents for membership affiliation in the RE/MAX network. The Company defers the annual dues revenue when billed and recognizes the revenue ratably over the 12-month period to which it relates. As of December 31, 2017 and 2016, the Company had deferred annual dues revenue totaling approximately $15.3 million and $14.2 million, respectively. Loan originators employed by Motto franchisees do not pay annual dues.

The activity in the Company’s annual dues deferred revenue consists of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

New billings

 

Revenue recognized

 

Balance at end of period

Year ended December 31, 2017

 

$

14,227

 

$

34,837

 

$

(33,767)

 

$

15,297

Year ended December 31, 2016

    

$

13,106

 

$

33,774

 

$

(32,653)

 

$

14,227

Year ended December 31, 2015

 

$

12,912

 

$

31,952

 

$

(31,758)

 

$

13,106

Broker Fees

Revenue from broker fees represents fees received from the Company’s franchise offices that are primarily based on a percentage of agents’ gross commission income. Revenue from broker fees is determined upon close of the home-sale transaction and recognized as revenue when the fees become due and payable, as stipulated in the related franchise agreements. Agents in certain regions existing prior to 2004, the year the Company began assessing broker fees, are generally “grandfathered” and continue to be exempt from paying a broker fee. As of December 31, 2017 grandfathered agents represented approximately 20% of total U.S. Company-owned agents. Motto franchisees do not pay any fees based on the number or dollar value of loans brokered.

Franchise Sales and Other Franchise Revenue

Franchise sales and other franchise revenue is primarily comprised of revenue from the sale or renewal of franchises, as well as other revenue including revenue from preferred marketing arrangements and with approved suppliers, and registration revenue from conventions held for agents and broker owners in the RE/MAX network.

Upon the sale of a franchise, the Company recognizes revenue from franchise sales when it has no significant continuing operational obligations, substantially all of the initial services have been performed by the Company and other conditions affecting consummation of the sale have been met. In the event the franchisee fails to perform under the franchise agreement or defaults on the purchase obligations, the Company has the right to reacquire the franchise and to resell or operate that specific franchise. Franchise sales revenue recognized during the years ended December 31, 2017,  2016 and 2015 was $10.8 million,  $8.8 million and $9.7 million, respectively.

Brokerage Revenue

As discussed in Note 5, Acquisitions and Dispositions the Company sold certain operating assets and liabilities of brokerage offices during 2015 and the first quarter of 2016 and, subsequent thereto, no longer operates any real estate brokerage offices and no longer recognizes brokerage revenue. Prior to the sale of the Company’s brokerage offices, brokerage revenue principally represented fees assessed by the Company-owned brokerages for services provided to their affiliated real estate agents. Because the independent contractors in the Company-owned brokerage offices operated as agents in a real estate transaction, the commissions earned and the related commission expenses paid to the agents were recorded on a net basis.  

Selling, Operating and Administrative Expenses

Selling, operating and administrative expenses primarily consist of personnel costs, including salaries, benefits, payroll taxes and other compensation expenses, professional fees, rent and related facility operations expense, as well as expenses for marketing, expanding and supporting the Company’s franchise and, through January 2016, brokerage operations. 

Cash and Cash Equivalents

Cash and cash equivalents include bank deposits and other highly liquid investments purchased with an original purchase maturity of three months or less. 

Fair Value of Financial Instruments

The carrying amounts of financial instruments, net of any allowances, including cash equivalents, accounts and notes receivable, accounts payable and accrued expenses approximate fair value due to their short-term nature.  

Accounts and Notes Receivable

Accounts receivable from the Company’s franchise operations are recorded at the time the Company bills under the terms of the franchise agreements and other contractual arrangements and do not bear interest. The Company provides limited financing of certain franchise sales through the issuance of notes receivable that either bear interest at a rate of prime plus 2% or at a stated amount, which is fixed at the inception of the note with the associated earnings recorded in “Interest income” in the accompanying Consolidated Statements of Income. Amounts collected on notes receivable are included in “Net cash provided by operating activities” in the accompanying Consolidated Statements of Cash Flows.

In circumstances where the Company has the contractual right to bill its franchisees, but where collectability is not sufficiently assured, the Company records a receivable and deferred revenue, which amounted to $1.2 and $1.0 million as of December 31, 2017 and 2016, respectively.

The Company records allowances against its accounts and notes receivable balances for estimated probable losses. Increases and decreases in the allowance for doubtful accounts are established based upon changes in the credit quality of receivables and are included as a component of “Selling, operating and administrative expenses” in the accompanying Consolidated Statements of Income. The allowance for doubtful accounts and notes receivable are the Company’s best estimate of the amount of probable credit losses, and is based on historical experience, industry and general economic conditions, and the attributes of specific accounts.

The activity in the Company’s allowances against accounts and notes receivable consists of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additions/charges

 

 

 

 

 

 

Balance at

 

to cost and expense for

 

 

 

 

 

 

beginning of period

 

allowances for doubtful accounts

 

Deductions/write-offs

 

Balance at end of period

Year ended December 31, 2017

 

$

5,535

 

$

1,159

 

$

(491)

 

$

6,203

Year ended December 31, 2016

    

$

4,483

 

$

1,325

 

$

(273)

 

$

5,535

Year ended December 31, 2015

 

$

4,495

 

$

353

 

$

(365)

 

$

4,483

For the years ended December 31, 2017,  2016 and 2015, bad debt expense related to trade accounts and notes receivable was $1.1 million,  $1.2 million and $0.4 million, respectively, and is reflected in “Selling, operating and administrative expenses” in the accompanying Consolidated Statements of Income. 

Accumulated Other Comprehensive Income (Loss), Foreign Operations and Foreign Currency Translation

Accumulated other comprehensive income (loss) includes all changes in equity during a period that have yet to be recognized in income, except those resulting from transactions with stockholders and is comprised of foreign currency translation adjustments.

As of December 31, 2017,  the Company, directly and through its franchisees, conducted operations in over 100 countries and territories, including the U.S. and Canada.  

The functional currency for the Company’s domestic operations is the U.S. dollar and for its Canadian subsidiary is the Canadian Dollar. Assets and liabilities of the Canadian subsidiary are translated at the spot rate in effect at the applicable reporting date, and the consolidated statements of income and cash flows are translated at the average exchange rates in effect during the applicable period. Exchange rate fluctuations on translating consolidated foreign currency financial statements into U.S. dollars that result in unrealized gains or losses are referred to as translation adjustments. Cumulative translation adjustments are recorded as a component of “Accumulated other comprehensive income,” a separate component of stockholders’ equity, and periodic changes are included in comprehensive income. When the Company sells a part or all of its investment in a foreign entity resulting in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided, it releases any related cumulative translation adjustment into net income.

Foreign currency denominated monetary assets and liabilities and transactions occurring in currencies other than the Company’s or the Company’s consolidated foreign subsidiaries’ functional currencies are recorded based on exchange rates at the time such transactions arise. Changes in exchange rates with respect to amounts recorded in the accompanying Consolidated Balance Sheets related to these non-functional currency transactions result in transaction gains and losses that are reflected in the accompanying Consolidated Statements of Income as “Foreign currency transaction gains (losses).” 

Property and Equipment

Property and equipment, including leasehold improvements, are initially recorded at cost. Depreciation is provided for on a straight-line method over the estimated useful lives of each asset class and commences when the property is placed in service. Amortization of leasehold improvements is provided for on a straight-line method over the estimated benefit period of the related assets or the lease term, if shorter.

Franchise Agreements and Other Intangible Assets

The Company’s franchise agreements result from franchise rights acquired from Independent Region acquisitions and are initially recorded at fair value. The Company amortizes the franchise agreements over their estimated useful life on a straight-line basis.

The Company also purchases and develops software for internal use. Software development costs incurred during the application development stage as well as upgrades and enhancements that result in additional functionality are capitalized. Costs incurred during the preliminary project and post-implementation-operation stages are expensed as incurred. Software development costs are generally amortized over a term of three to five years. Purchased software licenses are amortized over their estimated useful lives.

In addition, the Company owns the principal trademarks, service marks and trade names that it uses in conjunction with operating its business. These intangible assets increase when the Company pays to file trademark applications in the U.S. and certain other jurisdictions globally. The Company’s trademarks are amortized on a straight-line basis over their estimated useful lives.

The Company reviews its franchise agreements and other intangible assets subject to amortization for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is assessed by a comparison of the carrying amount of an asset group to estimated undiscounted future cash flows expected to be generated from such asset. If not recoverable, the excess of the carrying amount of an asset over its estimated discounted cash flows would be charged to operations as an impairment loss. For each of the years ended December 31, 2017,  2016 and 2015, there were no impairments indicated for such assets.

Goodwill

Goodwill is an asset representing the future economic benefits arising from the other assets acquired in a business combination that are not individually identified and separately recognized. The Company assesses goodwill for impairment at least annually or whenever an event occurs or circumstances change that would indicate impairment may have occurred at the reporting unit level. Reporting units are driven by the level at which segment management reviews operating results. The Company performs its required impairment testing annually on August 31.

The Company’s impairment assessment begins with a qualitative assessment to determine if it is more likely than not that a reporting unit’s fair value is less than the carrying amount. The initial qualitative assessment includes comparing the overall financial performance of the reporting units against the planned results as well as other factors which might indicate that the reporting unit’s value has declined since the last assessment date. If it is determined in the qualitative assessment that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then the standard two-step quantitative impairment test is performed. The first step of the quantitative impairment test consists of comparing the estimated fair value of each reporting unit with its carrying amount, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying value, then it is not considered impaired and no further analysis is required. If the first step of the quantitative impairment test indicates that the estimated fair value of a reporting unit is less than its carrying value, then impairment potentially exists and the second step of the quantitative impairment test is performed to measure the amount of goodwill impairment. Goodwill impairment exists when the estimated implied fair value of a reporting unit’s goodwill is less than its carrying value.

During 2017, 2016 and 2015, the Company performed the qualitative impairment assessment for all of its reporting units by evaluating, among other things, market and general economic conditions, entity-specific events, events affecting a reporting unit and the Company’s results of operations and key performance measures. Except for Motto, the fair value of our reporting units significantly exceeded their carrying values at our latest assessment date. Motto is a startup business and its fair value is tied primarily to franchise sales over the next several years. Failure to achieve targeted franchise sales would result in an impairment of this goodwill balance. 

The Company did not record any goodwill impairments during the years ended December 31, 2017,  2016 and 2015.

Income Taxes

The Company accounts for income taxes under the asset and liability method.  Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Management periodically assesses the recoverability of its deferred tax assets based upon expected future earnings, future deductibility of the asset and changes in applicable tax laws and other factors. If management determines that it is not probable that the deferred tax asset will be fully recoverable in the future, a valuation allowance may be established for the difference between the asset balance and the amount expected to be recoverable in the future. The allowance will result in a charge to the Company’s Consolidated Statements of Income. Further, the Company records its income taxes receivable and payable based upon its estimated income tax liability.

RMCO complies with the requirements of the Internal Revenue Code that are applicable to limited liability companies that have elected to be treated as partnerships, which allow for the complete pass-through of taxable income or losses to RMCO’s unitholders, who are individually responsible for any federal tax consequences. Provision for Income Taxes includes the federal income tax obligation related to RE/MAX Holdings’ allocated portion of RMCO’s income. RMCO is subject to certain state and local taxes, and its global subsidiaries are subject to tax in certain jurisdictions.

The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. 

Equity-Based Compensation

The Company recognizes compensation expense associated with equity-based compensation as a component of “Selling, operating and administrative expenses” in the accompanying Consolidated Statements of Income. All equity-based compensation is required to be measured at fair value on the grant date, is expensed over the requisite service, generally over a three-year period, and forfeitures are accounted for as they occur. The Company recognizes compensation expense on awards on a straight-line basis over the requisite service period for the entire award. Refer to Note 12, Equity-Based Compensation for additional discussion regarding details of the Company’s equity-based compensation plans.

New Accounting Pronouncements Not Yet Adopted

In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220), which adjusts the classification of stranded tax effects resulting from the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. ASU 2018-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018.  The standard is to be applied either in the period of adoption or retrospectively to each period effected by the Tax Cuts and Jobs Act.  The Company plans to adopt this ASU on January 1, 2019. As of December 31, 2017, the Company completed the majority of its accounting for the tax effects of the Tax Cuts and Jobs Act. The Company believes the amendments of ASU 2018-02 will not have a significant impact on the Company’s consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350), which simplifies the subsequent measurement of goodwill by eliminating step two from the goodwill impairment test. ASU 2017-04 is effective for annual and interim impairment tests beginning January 1, 2020 for the Company and is required to be adopted using a prospective approach. Early adoption is allowed for annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements and related disclosures.

Also in January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies when transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 is effective for fiscal years, and interim reporting periods within those years, beginning January 1, 2018 for the Company and is required to be adopted using a prospective approach. Early adoption is permitted for transactions not previously reported in issued financial statements. The Company will determine the effect of the standard on its consolidated financial statements and related disclosures based on the facts and circumstances of each individual acquisition or disposal.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which clarifies classification for certain cash receipts and cash payments on the consolidated statements of cash flow. ASU 2016-15 is effective for fiscal years, and interim reporting periods within those years, beginning January 1, 2018 for the Company. The standard requires a retrospective transition method for each period presented. Under the new guidance, the contingent consideration payments related to the purchase of Full House Mortgage Connection, Inc. (“Full House”) will be classified as financing outflows up to the $6.3 million acquisition date fair value and any cash payments paid in excess of the acquisition date fair value will be classified as operating outflows. (See Note 5, Acquisitions and Dispositions.) The Company expects no material impact on its financial statements and related disclosures upon the adoption of this standard.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize the assets and liabilities that arise from all leases on the consolidated balance sheets. ASU 2016-02 is required to be adopted by the Company on January 1, 2019. Early adoption is permitted in any interim or annual reporting period. The standard requires a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. The Company has not yet determined the effect of the standard on its consolidated financial statements and related disclosures.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), with several subsequent amendments, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The Company adopted this standard on January 1, 2018. The Company will use the modified retrospective transition method, which will result in restating each prior reporting period presented, fiscal years 2016 and 2017, in the year of adoption. Additionally, a cumulative effect adjustment will be recorded to the opening balance sheet as of the first day of fiscal year 2016, the earliest period presented.  The adoption of the new guidance will change the timing of recognition of franchise sales and franchise renewal revenue. Currently, the Company recognizes revenue upon completion of a sale or renewal. Under the new guidance, franchise sales and renewal revenue, which are included in “Franchise Sales and Other Franchise Revenue” in the Consolidated Statements of Income, will be recognized over the contractual term of the franchise agreement. The impact to both “Franchise Sales and Other Franchise Revenue” and “Operating Income” in the Consolidated Statements of Income for 2017 from this change will be a decrease of less than $2.0 million.  However, the Consolidated Balance Sheet as of December 31, 2017 will be adjusted in the first quarter of 2018 to reflect an increase in “Deferred revenue and deposits” of approximately $26.0 million.  The commissions related to franchise sales will be recorded as a contract asset and be recognized over the contractual term of the franchise agreement. Currently, the Company expenses the commissions upon franchise sale completion. The impact from this change to “Selling, operating and administrative expenses” and “Operating Income” in the Consolidated Statements of Income for 2017 is immaterial and the Consolidated Balance Sheet as of December 31, 2017 will be adjusted in the first quarter of 2018 to reflect an increase in “Total assets” of approximately $4.0 million.  The Company does not expect the adoption of the standard to have a material impact on other revenue streams.    

v3.8.0.1
Non-controlling Interest
12 Months Ended
Dec. 31, 2017
Noncontrolling Interest  
Non-controlling Interest

3. Non-controlling Interest

RE/MAX Holdings is the sole managing member of RMCO and operates and controls all of the business affairs of RMCO. The ownership of the common units in RMCO is summarized as follows:

d

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31,

 

 

 

2017

 

 

2016

 

 

    

Shares

    

Ownership %

    

 

Shares

    

Ownership %

 

Non-controlling interest ownership of common units in RMCO

 

12,559,600

 

41.51

%

 

12,559,600

 

41.57

%

RE/MAX Holdings, Inc. outstanding Class A common stock (equal to RE/MAX Holdings, Inc. common units in RMCO)

 

17,696,991

 

58.49

%

 

17,652,548

 

58.43

%

Total common units in RMCO

 

30,256,591

 

100.00

%

 

30,212,148

 

100.00

%

The weighted average ownership percentages for the applicable reporting periods are used to calculate the net income attributable to RE/MAX Holdings. In 2015 RE/MAX Holdings’ economic interest in RMCO significantly increased as a result of RIHI’s redemption of 5.2 million common units in RMCO and issuance of 5.2 million shares of Class A common stock.  

A reconciliation of “Income before provision for income taxes” to “Net income attributable to RE/MAX Holdings, Inc.” and “Net Income attributable to non-controlling interest” in the accompanying Consolidated Statements of Income for the periods indicated is detailed as follows (in thousands, except percentages): 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 

 

 

2017

 

 

2016

 

 

2015

 

 

RE/MAX Holdings, Inc.

 

Non-controlling interest

 

Total

 

 

RE/MAX Holdings, Inc.

 

Non-controlling interest

 

Total

 

 

RE/MAX Holdings, Inc.

 

Non-controlling interest

 

Total

 

Weighted average ownership percentage of RMCO (a)

 

58.48

%

 

41.52

%

 

100.00

%

 

 

58.40

%

 

41.60

%

 

100.00

%

 

 

42.33

%

 

57.67

%

 

100.00

%

Income before provision for income taxes

$

66,599

 

$

24,156

 

$

90,755

 

 

$

36,446

 

$

26,053

 

$

62,499

 

 

$

26,554

 

$

36,251

 

$

62,805

 

Provision for income taxes (b)(c)

 

(53,784)

 

 

(1,792)

 

 

(55,576)

 

 

 

(14,050)

 

 

(1,223)

 

 

(15,273)

 

 

 

(10,142)

 

 

(1,888)

 

 

(12,030)

 

Net income

$

12,815

 

$

22,364

 

$

35,179

 

 

$

22,396

 

$

24,830

 

$

47,226

 

 

$

16,412

 

$

34,363

 

$

50,775

 


(a)

The weighted average ownership percentage of RMCO differs from the allocation of income before provision for income taxes between RE/MAX Holdings and the non-controlling interest due to certain relatively insignificant expenses and the gain on reduction in TRA liability in 2017 being recorded at RE/MAX Holdings.

(b)

The provision for income taxes attributable to RE/MAX Holdings is primarily comprised of U.S. federal and state income taxes on its proportionate share of the pass-through income from RMCO. However, it also includes its share of taxes directly incurred by RMCO and its subsidiaries, related primarily to tax liabilities in certain foreign jurisdictions. 

(c)

The provision for income taxes attributable to the non-controlling interest represents its share of taxes related primarily to tax liabilities in certain foreign jurisdictions directly incurred by RMCO or its subsidiaries.  Because RMCO is a pass-through entity there is no U.S. federal and state income tax provision recorded on the non-controlling interest.

Distributions and Other Payments to Non-controlling Unitholders

Under the terms of RMCO’s fourth amended and restated limited liability company operating agreement (the “New RMCO, LLC Agreement”), RMCO makes cash distributions to non-controlling unitholders on a pro-rata basis.  The distributions paid or payable to or on behalf of non-controlling unitholders are summarized as follows (in thousands):

 

 

 

 

 

 

 

 

 

Year Ended

 

 

December 31, 

 

 

2017

 

2016

Tax and other distributions

 

$

8,217

 

$

10,391

Dividend distributions

 

 

9,043

 

 

7,536

Total distributions to non-controlling unitholders

 

$

17,260

 

$

17,927

On February 21, 2018, the Company declared a distribution to non-controlling unitholders of $2.5 million, which is payable on March 21, 2018.

RE/MAX Holdings ownership of RMCO and Tax Receivable Agreements

RE/MAX Holdings has twice acquired significant portions of the ownership in RMCO; first in October 2013 at the time of IPO when RE/MAX Holdings acquired its initial 11.6 million common units of RMCO and, second, in November and December 2015 when it acquired 5.2 million additional common units. RE/MAX Holdings sold Class A common stock, which it exchanged for these common units of RMCO. RIHI then sold the Class A common stock to the market.

When RE/MAX Holdings has acquired common units in RMCO, it received a step-up in tax basis on the underlying assets held by RMCO. The step-up is principally equivalent to the difference between (1) the fair value of the underlying assets on the date of acquisition of the common units and (2) their tax basis in RMCO, multiplied by the percentage of units acquired. The majority of the step-up in basis relates to intangibles assets, primarily franchise agreements and goodwill, and the step-up is often substantial. These assets are amortizable under IRS rules and result in deductions on the Company’s tax return for many years and consequently, RE/MAX Holdings receives a future tax benefit. These future benefits are reflected within deferred tax assets of approximately $59.2 million on the Company’s consolidated balance sheets as of December 31, 2017. 

If RE/MAX Holdings acquires additional common units of RMCO from RIHI, the percentage of RE/MAX Holdings’ ownership of RMCO will increase, and additional deferred tax assets will be created as additional tax basis step-ups occur.

In connection with the initial sale of RMCO common units in October 2013, RE/MAX Holdings entered into TRAs which require that RE/MAX Holdings make annual payments to RIHI and Oberndorf Investments LLC (a successor to the other previous owner of RMCO) equivalent to 85% of any tax benefits realized on each year’s tax return from the additional tax deductions arising from the step-up in tax basis.  A TRA liability was established for the future cash obligations expected to be paid under the TRAs and is not discounted. As of December 31, 2017, this liability was $53.2 million. Similar to the deferred tax assets, these liabilities would increase if RE/MAX Holdings acquires additional common units of RMCO from RIHI.

Both these deferred tax assets and TRA liability were substantially reduced by the Tax Cuts and Jobs Act enacted in December 2017. The reduction in the corporate tax rate from 35% to 21% resulted in comparable reductions in both the deferred tax asset amounts and the TRA liabilities. See Note 11, Income Taxes for further information on the impact of the Tax Cuts and Jobs Act.

v3.8.0.1
Earnings Per Share and Dividends
12 Months Ended
Dec. 31, 2017
Earnings Per Share and Dividends  
Earnings Per Share and Dividends

 

4. Earnings Per Share and Dividends

Earnings Per Share

Basic earnings per share (“EPS”) measures the performance of an entity over the reporting period. Diluted EPS measures the performance of an entity over the reporting period while giving effect to all potentially dilutive common shares that were outstanding during the period. The treasury stock method is used to determine the dilutive potential of stock options and restricted stock units.

The following is a reconciliation of the numerator and denominator used in the basic and diluted EPS calculations (in thousands, except shares and per share information):

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended

 

 

December 31, 

 

    

2017

    

2016

    

2015

Numerator

 

 

   

 

 

 

 

 

 

Net income attributable to RE/MAX Holdings, Inc.

 

$

12,815

 

$

22,396

 

$

16,412

Denominator for basic net income per share of Class A common stock

 

 

 

 

 

 

 

 

 

Weighted average shares of Class A common stock outstanding

 

 

17,688,533

 

 

17,628,741

 

 

12,671,051

Denominator for diluted net income per share of Class A common stock

 

 

 

 

 

 

 

 

 

Weighted average shares of Class A common stock outstanding

 

 

17,688,533

 

 

17,628,741

 

 

12,671,051

Add dilutive effect of the following:

 

 

 

 

 

 

 

 

 

Stock options

 

 

 —

 

 

5,059

 

 

130,001

Restricted stock units

 

 

43,267

 

 

43,968

 

 

28,162

Weighted average shares of Class A common stock outstanding, diluted

 

 

17,731,800

 

 

17,677,768

 

 

12,829,214

Earnings per share of Class A common stock

 

 

 

 

 

 

 

 

 

Net income attributable to RE/MAX Holdings, Inc. per share of Class A common stock, basic

 

$

0.72

 

$

1.27

 

$

1.30

Net income attributable to RE/MAX Holdings, Inc. per share of Class A common stock, diluted

 

$

0.72

 

$

1.27

 

$

1.28

There were no anti-dilutive shares for the years ended December 31, 2017, 2016 and 2015. The one share of Class B common stock outstanding does not share in the earnings of RE/MAX Holdings and is therefore not a participating security. Accordingly, basic and diluted net income per share of Class B common stock has not been presented.

Dividends

Dividends declared and paid to holders of the Company’s Class A common stock during the years ended December 31, 2017, 2016 and 2015 were $12.7 million, $10.6 million and $24.0 million, respectively. Dividends declared and paid quarterly per share on all outstanding shares of Class A common stock during the years ended December 31, 2017, 2016 and 2015 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

 

2017

 

2016

 

2015

 

 

Date paid

 

Per share

 

Date paid

 

Per share

 

Date paid

 

Per share

Dividend declared during quarter ended:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31

 

March 22, 2017

 

$

0.18

 

 

March 23, 2016

 

$

0.15

 

April 8, 2015

 

$

1.625

June 30

 

May 31, 2017

 

 

0.18

 

 

June 2, 2016

 

 

0.15

 

June 4, 2015

 

 

0.125

September 30

 

August 30, 2017

 

 

0.18

 

 

August 31, 2016

 

 

0.15

 

September 3, 2015

 

 

0.125

December 31

 

November 29, 2017

 

 

0.18

 

 

December 1, 2016

 

 

0.15

 

November 27, 2015

 

 

0.125

 

 

 

 

$

0.72

 

 

 

 

$

0.60

 

 

 

$

2.00

On February 21, 2018, the Company’s Board of Directors declared a quarterly dividend of $0.20 per share on all outstanding shares of Class A common stock, which is payable on March 21, 2018 to stockholders of record at the close of business on March 7, 2018.

v3.8.0.1
Acquisitions and Dispositions
12 Months Ended
Dec. 31, 2017
Acquisitions and Dispositions  
Acquisitions and Dispositions

5. Acquisitions and Dispositions

Independent Region Acquisitions

RE/MAX, LLC has acquired certain key assets of several Independent Regions, including the franchise agreements issued by the Company permitting the sale of RE/MAX franchises in the corresponding regions as well as the franchise agreements between those Independent Regions and the franchisees.  RE/MAX, LLC acquired these assets in order to expand its owned and operated regional franchising operations.  Details of these acquisitions are outlined in the tables below. 

The Company funded RE/MAX of Georgia, Inc., RE/MAX of Kentucky/Tennessee, Inc., and RE/MAX of Southern Ohio, Inc., collectively (“RE/MAX Regional Services”) by refinancing its 2013 Senior Secured Credit Facility (See Note 9, Debt) and using cash from operations.  The Company used cash generated from operations to fund all other Independent Region acquisitions. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RE/MAX of Northern Illinois, Inc.

 

RE/MAX Regional Services

 

RE/MAX of New Jersey, Inc.

 

RE/MAX of Alaska, Inc.

 

RE/MAX of New York, Inc.

 

Acquisition date

 

November 15, 2017

 

December 15, 2016

 

December 1, 2016

 

April 1, 2016

 

February 22, 2016

 

Cash consideration (in thousands)

 

35,720

 

50,400

 

45,000

 

1,500

 

8,500

 

Status of accounting for the business combination

 

Preliminary(a)

 

Final as of December 31, 2017(b)

 

Final as of December 31, 2017(b)

 

Final as of December 31, 2016

 

Final as of December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions occurring during the current reporting period:

 

 

 

 

 

 

 

 

 

 

 

Acquisition-related costs (in thousands)(c)

 

333

 

 

 

 

 

 

 

 

 

Revenue since acquisition date (in thousands)(d)

 

595

 

 

 

 

 

 

 

 

 

Weighted-average useful life of franchise agreements acquired

 

12.4

 

 

 

 

 

 

 

 


(a)

The preliminary estimated fair value of the assets acquired is subject to adjustments based on the Company’s final assessment of the fair values of the franchise agreements, which is the acquired asset with the highest likelihood of changing upon finalization of the valuation process.

(b)

As of December 31, 2017, the Company finalized its purchase allocations related to the acquisitions of RE/MAX Regional Services and RE/MAX of New Jersey.  Adjustments recorded during the measurement-period are calculated as if they were known at the acquisition date, but are recognized in the reporting period in which they are determined. The Company does not revise or adjust any prior period information. In finalizing the accounting for these acquisitions, adjustments were made during the year ended December 31, 2017 to the consolidated balance sheet to decrease “Goodwill” by $4.2 million with a corresponding increase to “Franchise agreements, net” of $4.2 million. The Company recognized a reduction in depreciation and amortization expense of $0.8 million during the year ended December 31, 2017 in connection with these measurement adjustments.

(c)

Includes transaction and integration costs such as legal, accounting, advisory and consulting fees for the year ended December 31, 2017 that are included in “Selling, operating and administrative expenses” in the accompanying Consolidated Statements of Income.

(d)

Includes the amount of revenue of the acquiree since the acquisition date through the year ended December 31, 2017 that is included in the accompanying Consolidated Statements of Income. 

The franchise agreements acquired were valued using an income approach which utilizes level 3 inputs and are being amortized over a weighted-average useful life using the straight-line method. 

Full House Mortgage Connection, Inc.

Motto Franchising, LLC (“Motto Franchising”), a wholly-owned subsidiary of RE/MAX, LLC, was formed and developed to franchise mortgage brokerages. On September 12, 2016, Motto Franchising acquired certain assets of Full House Mortgage Connection, Inc. (“Full House”), a franchisor of mortgage brokerages that created concepts used to develop Motto, for initial cash consideration of $8.0 million. Motto Franchising, as a franchisor, grants each franchisee a license to use the Motto Mortgage brand, trademark, promotional and operating materials and concepts. The Company used cash generated from operations to initially fund the acquisition. Additional cash consideration may be required based on future revenues generated. The contingent purchase consideration and its subsequent valuation is more fully described in Note 10, Fair Value Measurements.

The following table summarizes the estimated consideration transferred at the acquisition (in thousands):

 

 

 

Cash consideration

$

8,000

Contingent purchase consideration (See note 10)

 

6,300

Total purchase price

$

14,300

The following table summarizes the allocation of the purchase price to the fair value of assets acquired for the aforementioned acquisitions (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RE/MAX of Northern Illinois

 

RE/MAX Regional Services

 

RE/MAX of New Jersey

 

Full House

 

RE/MAX of Alaska

 

RE/MAX of New York

 

Total

Cash and cash equivalents

 

$

 -

 

$

 -

 

$

335

 

$

 -

 

$

 -

 

$

131

 

$

466

Franchise agreements

 

 

23,500

 

 

30,700

 

 

29,700

 

 

 -

 

 

529

 

 

5,000

 

 

89,429

Non-compete agreement

 

 

 -

 

 

 -

 

 

 -

 

 

2,500

 

 

 -

 

 

 -

 

 

2,500

Other assets

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

340

 

 

340

Goodwill

 

 

12,220

 

 

19,700

 

 

15,300

 

 

11,800

 

 

971

 

 

3,029

 

 

63,020

Other liabilities

 

 

 -

 

 

 -

 

 

(335)

 

 

 -

 

 

 -

 

 

 -

 

 

(335)

Total purchase price

 

$

35,720

 

$

50,400

 

$

45,000

 

$

14,300

 

$

1,500

 

$

8,500

 

$

155,420

Each of these constitute a business and were accounted for using the fair value acquisition method.  The total purchase price for all acquisitions was allocated to the assets acquired based on their estimated fair values. The excess of the total purchase price over the estimated fair value of the identifiable assets acquired was recorded as goodwill. The goodwill recognized for all acquisitions is attributable to expected synergies and projected long-term revenue growth. All of the goodwill recognized is tax deductible.

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information reflects the consolidated results of operations of the Company as if the acquisition of RE/MAX of Northern Illinois had occurred on January 1, 2016 and the acquisitions of RE/MAX Regional Services, RE/MAX of New Jersey, RE/MAX of Alaska and RE/MAX of New York had occurred on January 1, 2015.  The historical financial information has been adjusted to give effect to events that are (1) directly attributed to the acquisitions, (2) factually supportable and (3) expected to have a continuing impact on the combined results, including additional amortization expense associated with the valuation of the acquired franchise agreements. This unaudited pro forma information should not be relied upon as necessarily being indicative of the historical results that would have been obtained if the acquisitions had actually occurred on that date, nor of the results that may be obtained in the future.

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 

 

2017

 

2016

 

2015

 

(in thousands, except per share amounts)

Total revenue

$

199,769

 

$

192,594

 

$

189,397

Net income attributable to RE/MAX Holdings, Inc. (a)

$

13,035

 

$

23,533

 

$

16,746

Basic earnings per common share

$

0.74

 

$

1.33

 

$

1.32

Diluted earnings per common share

$

0.74

 

$

1.33

 

$

1.31


(a)

Year ended December 31, 2016 includes the net impact of $1.0 million in professional fees and debt extinguishment costs incurred related to the amendment of the Company’s credit facility. See Note 9, Debt for a discussion of the credit facility.

Dispositions

Sacagawea, LLC d/b/a RE/MAX Equity Group

On December 31, 2015, the Company sold certain operating assets and liabilities related to 12 owned brokerage offices located in the U.S., of Sacagawea, LLC d/b/a RE/MAX Equity Group (“RE/MAX Equity Group”), a wholly owned subsidiary of the Company. The Company recognized a gain on the sale of the assets of approximately $2.8 million during the fourth quarter of 2015, which is reflected in “Loss (gain) on sale or disposition of assets, net” in the accompanying Consolidated Statements of Income. In connection with this sale, the Company transferred separate office franchise agreements to the purchaser, under which the Company will receive ongoing monthly continuing franchise fees, broker fees and franchise sales revenue. During the third quarter of 2017, the Company recognized a loss of approximately $0.5 million as a revised estimate of the final settlement on certain provisions of the asset sale agreement which is reflected in the “Loss (gain) on sale or disposition of assets, net” in the accompanying Consolidated Statements of Income.

RB2B, LLC d/b/a RE/MAX 100

On April 10, 2015, the Company sold certain operating assets and liabilities related to six owned brokerage offices located in the U.S., of RB2B, LLC d/b/a RE/MAX 100 (“RE/MAX 100”), a wholly owned subsidiary of the Company. The Company recognized a gain on the sale of the assets and the liabilities transferred of $0.6 million during the second quarter of 2015, which is reflected in “Loss (gain) on sale or disposition of assets, net” in the accompanying Consolidated Statements of Income. In connection with this sale, the Company transferred separate office franchise agreements to the purchaser, under which the Company will receive ongoing monthly continuing franchise fees, broker fees and franchise sales revenue. 

v3.8.0.1
Property and Equipment
12 Months Ended
Dec. 31, 2017
Property and Equipment  
Property and Equipment

6. Property and Equipment

Property and equipment consist of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 

 

    

Depreciable Life

    

2017

    

2016

Leasehold improvements

    

Shorter of estimated useful life or life of lease

 

$

3,227

 

$

3,063

Office furniture, fixtures and equipment

 

1 - 10 years

 

 

12,004

 

 

11,824

 

 

 

 

 

15,231

 

 

14,887

Less accumulated depreciation

 

 

 

 

(12,326)

 

 

(12,196)

 

 

 

 

$

2,905

 

$

2,691

Depreciation expense was $0.9 million,  $0.9 million and $1.0 million for the years ended December 31, 2017,  2016 and 2015, respectively.

v3.8.0.1
Intangible Assets and Goodwill
12 Months Ended
Dec. 31, 2017
Intangible Assets and Goodwill  
Intangible Assets and Goodwill

7. Intangible Assets and Goodwill

The following table provides the components of the Company’s intangible assets (in thousands, except weighted average amortization period in years):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Weighted

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

Average

 

As of December 31, 2017

 

As of December 31, 2016

 

 

Amortization

 

Initial

 

Accumulated

 

Net

 

Initial

 

Accumulated

 

Net

 

 

Period

 

Cost

 

Amortization

 

Balance

 

Cost

 

Amortization

 

Balance

Franchise agreements

 

12.5

 

$

181,567

 

$

(62,218)

 

$

119,349

 

$

224,167

 

$

(115,027)

 

$

109,140

Other intangible assets: